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March 01, 2018

A big change that favors landlords could cause office rents to rise

Puget Sound Business Journal

Marc Stiles

A new way of measuring office space means rents will rise for some tenants, commercial real estate brokers say.

Thank the Building Owners and Managers Association. Made up of real estate developers and property managers, the 111-year-old organization advocates for landlords.

Last fall, BOMA revised its guidelines for measuring rentable square feet. Most office leases on the West Coast use the BOMA standard.

There are two significant changes that may negatively affect the tenant, said Bryan Geisbauer, senior vice president with Seattle-based Kidder Mathews.

The first is how elevator shafts and stairwells are measured. The second integrates private balconies, covered galleries and rooftop terraces into the usable space calculation, said Geisbauer, who works in Kidder's San Diego office.

Landlords can now try to include private balconies and terraces in gross rentable space calculations, whereas previously they had been considered an amenity to the space, said Bo Sederstrom, senior vice president with Kidder Mathews' Phoenix office.

"Tenants who currently have these types of spaces should pay particular attention to the BOMA language at the time of a lease renewal as landlords may attempt to insert the new BOMA standard into the lease documents. Don't accept the landlord's 'it's market' or 'it's standard' argument," Sederstrom said in a news release.

In the old BOMA standard, "vertical service areas" such as a pipe or mechanical shaft were included in the rentable area calculation, but stairwells and elevator shafts were not.

The new standard allows for ground-floor elevator shafts on lower levels to be added to the rentable square footage of the building.

Geisbauer said landlords typically re-measure a building before they sell it, after they buy it or while they upgrade it.

It's rare that a building gets smaller, he said; they "magically" tend to grow, he said, explaining that the new standards has created new ways for landlords to increase the income from the property.

While landlords might choose to adopt these revised 2017 standards, they are not obligated to, Geisbauer said. He added it's important to understand the differences between the 1996, 2010 or 2017 standards, and which BOMA standard the landlord is attempting to use in a lease.

It's not all bad news for tenants. Geisbauer said the new standard allows for the allocation of common areas, such as conference rooms and loading docks, to a specific tenant or group. This helps ensure tenants are not paying for space they don't directly benefit from, he said.

A fact sheet about the new BOMA standard is here.

For the full story, go to Puget Sound Business Journal.

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